Thomas Henning: Musings of a Stock Market Curmudgeon
Gold:
What the Game Is All About, Part II
In the previous gold article, Part I, I suggested that the world's bankers are playing a Monopoly money transfer game between nations, collecting a pile of vigorish in the process. The Monopoly money, which has been created out of thin air with bookkeeping entries, is backed up by debt. A downside bond market crash would crank up interest rates making the onerous debt load backing up the Monopoly money impossible to service. This crank-up of rates would force default and liquidation of goods and housing. The debt implosion would make obvious that the Monopoly money is worthless. Kiss off the pension funds, housing, free lunch, the whole shebang.
As this has been going on, the treasuries of the world, most notably the Brits the Russians and the Swiss have been liquidating gold since the late 1990s as the gold market bottomed and absorbed the selling like a damp sponge. A glance at the monthly XAU chart will illustrate this gold accumulation. We know this because this is the way the money flowed, and money flow is the only true expression of truth and reality. Gold was liquidated and sold into the market that readily absorbed it.
The next obvious question is who engineered the gold purge through the treasuries' front doors, with a massive buying through the back door in the open market? The answer that almost always comes to mind is the usual suspects, the Tri-Lats, CFR, Builder gang, etc.
The problem with this usual suspect conclusion is that this gang is too diverse in background and attitude to effect a unified anti-nationalistic movement that has such a dogged, cohesive, long-term perspective, unwavering in executing an enterprise that undermines national economic self-interest. Just picture Swiss bankers sitting across the table coming to an agreement to liquidate gold with the Russian representative who, like all of those KGB stone-age butchers, developed their diplomatic skills in the torture chambers down in the bowels of Moscow's Lubyanka prison. No way. While the usual suspects may belong to the club and are enjoying the good life, soaking up the vigorish in the game, they are most probably like a bunch of fraternity boys deluding themselves that they are on the inside. In the final analysis, they are most likely enablers, but not controllers. Human nature rules out such an unwavering, cohesive anti-nationalistic enterprise such as undermining a nation's currency. These boys are most probably stooges for a higher power that has the discipline and the perspective to execute such an unwavering plan.
What can one infer about the higher power behind the gold raid? First, the power has economic muscle beyond comprehension. As we used to say on the South side of Chicago, the amount of gelt to soak up that much gold is not chopped chicken liver. That's economic muscle. In addition, the power had the muscle to force the Bank of England, the Swiss and the Lower Slobovians to liquidate gold against their own national self-interest. The usual suspects did not voluntarily sell gold as an act of unselfish love. The Bank of England did not sell off chunks of their gold in exchange for the third world debt to be good guys. Even a blithering idiot would not believe that line.
They had to be strong-armed into the sale most probably rationalizing the sale by assuming that they'll be on the ìinside.î In addition, having been raised on the myth of Fed-babble, no doubt they have a strong tendency to believe their own bull manure.
Secondly, the higher power is not a bunch of hustlers trying to buy low, sell high. Their purpose is beyond that usual motivation to be the richest guy in the graveyard. Instead, one must realize that the only purpose to accumulate that much gold is an effort not to hustle a buck, but to empire-build. What has occurred is a raid on gold undermining national currencies, thus concentrating gold to devise a new currency, and, in so doing, to build control in order to enforce the Golden Rule: ìThe guy with the gold makes the rules.î They've revealed themselves because to pull this stunt off, they had to enter the visible world of the markets. That's why the good Lord gave the savvy player a thing called the tape.
So who or what is the higher Power? At the risk of being a bit stinky, I have a very good hunch what the power is, but having a strong hunch is not knowing. What I do know is that the gold strip occurred, the currencies have been undermined, the debt implosion will occur when the bonds bust and the currencies will be relatively worth less in relation to gold. It doesn't matter who or what the power is. One cannot challenge that kind of muscle or ìeducate the public.î (Gag!) One can only hope to make a buck. And besides, their little game is going to fail anyway. That will be the subject in next installment of this little screed along with a few thoughts about the transition from inflation to deflation.
Meanwhile, let's see if the markets, the real world, will endorse this scenario.
Refer to the Weekly Bond chart and note that the final upleg in a cyclic bull market that started in 2002 waved up as marked. Near term, the bonds are hanging on by bloody fingernails as the Daily and Weekly Soft Momentum studies have flashed early sell signals. The Daily Hard Momentum has broken down. The very recent strength was loaded with cancerous bearish internal non-confirmations. A close below 110 would bust the Weekly Hard Momentum to the downside and would suggest that the twenty-year cycle is done, and a bear cycle is starting. A close below 102 would confirm this breakdown with rates screaming higher. Debt implosion.
The gold complex has been under accumulation since the late 1990s and has kicked off a cyclic uptrend as illustrated by the Monthly XAU chart. As stated previously, the Elliott count has been chop suey, but in the last article, I held out the possibility of a correction, which appears to have started.
The only practical tactical approach is not to get cute and trade this uptrend. The risk of losing a good position is simply too great. Stay with the main trend.
The stock market has been in a cyclic uptrend since August, 1982. The twenty-two-year up cycle is mature having the most probable final upleg bottoming in 2002 and moving up in a 5-wave upleg as illustrated by the Weekly Value Line chart.
Near term, internal bearish divergences have not confirmed the marginal new highs suggesting that the upleg is on thin ice.
Tactically, the uptrend must be respected in spite of the internal divergences. However, closes below Dow 10,400, Transports 3660, with a breakdown by the March Bond futures below 109, would suggest that the terminal uptrend is complete and a cyclic bear market having a life expectancy is starting.
To put the whole picture together, much of the gold has been sold off in unison from the world's treasuries, to be readily soaked up in the gold market. The currencies that remain are backed by a massive debt bubble.
A crack by the bond market below 110 would signal the start of a cyclic upside move in rates, which would bust the debt bubble. The stock market is most probably at the end of a twenty-year bull cycle, and closes below key levels would suggest the start of bear cycle having a decade-long life expectancy. The cyclic bull market in gold, harmonizing with the cyclic bear market in the Dollar, is no doubt beginning to discount the debt implosion. The final result will be financial chaos as the usual suspects wander in a world that they don't comprehend.
Some empire-building force is engineering the gold sale and is accumulating the gold. I strongly suspect that this game will ultimately fail. Tune in for the next article, Gold, Part III.
Editor's Note: Tom Henning is a regular contributor to The Bull & Bear Financial Report. Henning's, Gold: What the Game Is All About, Part 1, article is posted on The Bull & Bear's sister site, www.TheResourceInvestor.com.
Also Read: Gold, What The Game Is All About, Part I
Also Read: Gold, What The Game Is All About, Part III
Also Read: Gold, What The Game Is All About, Part IV
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